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China’s Top Coal Province to Raise Output to Boost Local Economy

(Bloomberg) -- Major miners in China’s biggest coal hub plan to raise output to rescue the local economy, which could help reverse this year’s rare drop in national production, according to the industry’s top association. 

Producers in Shanxi province intend to normalize output next month, including the resumption of night shifts, after a slowdown caused by increased scrutiny on safety following a spate of fatal accidents, the China Coal Transportation and Distribution Association said at a briefing on Wednesday.

The move comes after Shanxi’s production plunged by nearly a fifth in the first quarter, sending the coal-dependent province to the bottom of China’s economic growth rankings, behind 30 other regions. It also contributed to a 4.1% decline in output nationwide, China’s first since a 0.1% drop in the third quarter of 2020.

Shanxi “needs coal revenues to bolster the local economy,” said CCTD analyst Chao Yuke.

The drop in production has forced China to lean even more heavily on imports. Overseas purchases hit a record last year and are tracking to rise further in 2024. The supply of higher-quality coking coal used by steelmakers — which China is generally short of — has been most affected by the constraints on supply. But demand for thermal coal is also set to rise as the nation switches on the air conditioning to cope with rising temperatures.

China’s real estate crisis has kept the steel industry in the doldrums, mitigating the impact of its coking coal shortage. But recent efforts by the government to boost the property sector could raise demand for steel, and as a consequence coal, according to CCTD. 

As such, the association expects coking coal imports to keep rising this year, particularly from Mongolia, which has seen record demand from China, and Russia, which last month waived export duties. 

China’s neighbors enjoy a cost advantage over Australia, its other big supplier, which is more likely to see its shipments displaced by the rise in domestic production, said Chao.

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